I'm known for my strong views on mobile technology, online media, and the effect this has on and communication will have on the public conscious and existing businesses.
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The UK's 4G Auction Will Hobble The Networks To Reduce The National Deficit

The confirmation of the seven bidders for the 4G spectrum announced by telecoms regulator Ofcom in the UK this week has left me feeling rather melancholy. While fast mobile data is going to be a good thing to have (and I can’t wait to see what the start-ups make of it), the auction process is going to stifle innovation because of the need to create a financial windfall for the Government.

Put simply, the current mobile network operators cannot afford to lose the auction. Without 4G in their inventory they will be left behind as customers sign on to new contracts with the ‘modern’ 4G networks in 2013 and 2014. The auction will extract high bids and land the networks with a significant level of debt, having a negative effect on the debt/asset ratios of all the networks, with a knock-on effect on the company credit ratings.

During the UK 3G auctions, the winning bids totalled £22.5 billion, but nobody is expecting such stratospheric amounts this time around. The networks will not be projecting the revenue levels from 4G that they had during 3G, there’s far less floating cash in mobile telephony, and the focus will be on consumer use of mobile data, with business use a secondary concern. During the 3G auctions business data plans were expected to be the main income source, which were priced accordingly, and the uptake did not meet expectations.

To be fair the 4G auction will have one beneficiary, the public purse will receive an estimated £2.5 billion to £3.5 billion from the winning bids. But this will be a one-off payment that will not be earmarked into an special investment fund or earmarked for a good cause, it will simply be absorbed by the UK Treasury and will be one more line of ‘income’ that will be used to maintain the perception that the current government are reducing the UK’s budget deficit.

Who will pay? The customer obviously. Networks need to recoup the investment made in the 4G equipment, they’ll need to cover the cost of bidding, and they’ll need to continue to be profitable. 4G is going to be priced higher than 3G, in the case of EE it’s roughly £60 a year higher for a similar data cap (albeit you’ll be able to download all that data much faster and hit your limit earlier in the billing cycle).

There are alternatives to the bidding process that could have been used and would have left less of a debt on the mobile networks. I’ve argued before that the mobile network is a vital part of the UK’s infrastructure and should be managed as a central resource, just as roads and railways are. Other countries replace the lump sum bidding process with a percentage of profits generated by the network spectrum.

But the UK Treasury are focused on the deficit, and in a political drive to show competency and a downward trend they’re going to take the money as quickly as possible to help the 2013 numbers… and hope something else comes along in 2014 when this one-off tax on the networks.

In the meantime the possibilities of fast mobile internet access, the innovation this could drive , the start-ups that could be built, they are all going to be hampered with a 4G network that has been financial hobbled for political reasons.

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